Despite pledging to crack down on foreclosure scam artists three years ago, Attorney General Kamala Harris has allowed an industry of fraud to flourish.

Attorney General Harris said the Mortgage Fraud Strike Force was "designed to protect innocent homeowners and to bring justice to those who would defraud them."

This report won a first-place award in the best news story category in the 38th Greater Bay Area Journalism Awards contest.

One giant fraud spawns ten thousand smaller frauds — that was one of the major lessons of the foreclosure crisis. A relatively small number of mortgage lenders issued millions of toxic home loans in the 2000s, often misrepresenting the terms to borrowers or predatorily targeting low-income homeowners, Latinos, African Americans, immigrants, and the elderly with financial products that were practically designed to fail. Then when the crash came in 2008, thousands of smaller fraudsters crawled out from under their rocks to feed off the carnage caused by the collapse of the mortgage market.

Calling themselves "foreclosure consultants," this army of rip-off artists set up on the internet and plastered local newspapers, especially ethnic media, with advertisements, claiming that "we can stop your foreclosure." Radio ads broadcasted on English- and Spanish-language stations promised to "halt foreclosure." Scam artists pumped their messages through late-night TV: "Obtain a loan modification to stay in your house." Sometimes scammers posed as representatives of federal housing programs, emblazoning HUD and Treasury Department seals on their deceptive websites, mailers, and brochures. One company even used a robocall system programmed with President Obama's voice announcing a phony mortgage "rescue" plan.

Desperate homeowners sailed toward these siren songs. The typical victim handed over thousands of dollars for services that were never rendered or for services that could never stop a foreclosure. Fake and crooked lawyers filed faux lawsuits, claiming they could slow down foreclosure sales. Unlicensed brokers pretended to negotiate new loans, collecting big upfront fees, but then doing little or no work. Some scammers were small fries, taking advantage of just a few distressed borrowers. Bigger sharks defrauded dozens, even hundreds of borrowers out of millions of dollars. There were literally thousands of rip-off operations, so many that no one — not any state or federal agency or law enforcement authority — has tallied a sound estimate. And they're still a problem. They're still preying on distressed homeowners who were left high and dry by the federal economic bailout, which did little or nothing to alleviate the average American's debt woes.

The Lawyers Committee for Civil Rights Under Law is still receiving between five hundred and eight hundred complaints a month from homeowners throughout the nation about foreclosure rescue scams. The committee's representatives enter the complaints into a database that feeds into a larger federal consumer complaints repository. "California leads the way," said Michael Tanglis, an analyst with the committee. According to Tanglis, homeowners nationwide have made more than 13,000 complaints against scam operations based in California since 2010. "California also leads the way with 6,000 complaints reported by in-state homeowners," Tanglis added.

"It's been a massive problem, and I suspect it still is," said Maeve Elise Brown, executive director of Housing and Economic Rights Advocates, a nonprofit that gives free legal assistance to homeowners in distress. "Every other client we deal with has paid money to at least one scam."

"California, tragically, is the epicenter for the loan modification frauds," said Joseph Dunn, CEO of the California State Bar. The state bar found it necessary to carry out a sweeping disciplinary campaign against lawyers who loaned their names and credentials to foreclosure rescue scams. It's a record of discipline that gives a sense of how vast the mortgage consultant problem has been: From February 2009 to October 2013, the state bar received 13,200 complaints against attorneys regarding mortgage loan modifications. The Office of Chief Trial Counsel, the state bar's enforcement arm, has pursued disciplinary charges in 1,654 cases of loan modification fraud, involving 211 licensed California attorneys. As a result, the state bar has disbarred 57 attorneys. Cases against another 50 attorneys are pending before the State Bar Court, and another 86 attorneys are currently under investigation.

But the cases brought by the state bar represent just a fraction of California-based foreclosure rescue operations, many of which did not involve lawyers. "When there's money to be had, there's gonna be a constant flow of fraudsters," said Dunn.

The problem was so bad that, in 2011, when Kamala Harris took over the California Attorney General's Office, she announced the creation of a statewide task force to tackle mortgage fraud. A big focus of the task force was supposed to be going after rescue scam artists. At a May 23 press conference that year, Harris called mortgage fraud a "top priority" for her team.

"The California Department of Justice received thousands of complaints last year alone — all related to foreclosure scams, mortgage fraud, and mortgage servicing scams," said Harris. "2.2 million Californians owe more than their home is worth. Their distress and vulnerability is a very rich opportunity for predators."

Harris described the Mortgage Fraud Strike Force as a crack division in the state DOJ, "designed to protect innocent homeowners and to bring to justice those who would defraud them.

"As California's real estate boom set a trend for the rest of the nation, so too will our policing of its dark side," Harris continued. Harris initially assigned 25 DOJ lawyers and investigators to the Mortgage Fraud Strike Force, which had had a clear mandate to aggressively stamp out foreclosure fraud, and an annual budget of $2.45 million in fiscal year 2011-12, and $2.63 million in 2012-13, according to public records.

And yet three years after the establishment of the Mortgage Fraud Strike Force, Harris' office has prosecuted only ten cases of foreclosure consultant fraud. Despite the fact that California was the hardest hit state by foreclosure rescue scams, and that it is the home base for more scam artists than any other state, Harris' strike force has prosecuted fewer foreclosure consultant fraud cases than attorneys general in numerous other states. Moreover, as Harris' office has failed to act, attorneys general in other states have turned their sights on California, targeting rip-off artists who are based here and have scammed homeowners elsewhere in the country.

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